With tax time here, the ATO is using the mainstream media and accounting forums to put businesses and individuals on notice that this year is going to be very different to last.
The implication is clear. With the economy on the mend and things settling into a “new normal”, tax compliance activities are once again on the agenda and the rules will be enforced with more vigour. How or whether the recently announced government support impacts this enforcement is yet to be seen.
Conducting mainstream media interviews and addressing accountant forums, the ATO have nominated the key focus areas for 2021 as;
– Work related and work from home deductions. The ATO is targeting individuals and businesses that blur the lines between personal and work-related expenses and claim “standard” deductions.
– Property expense claims. According to the ATO, rentals contribute $1.5 billion annually to the tax gap, and nine out of 10 returns required adjustment. Interest claims, capital works, and repairs are the three key areas identified where people over claim or try to claim personal expenses.
– Gig economy income, shares and Cryptocurrency trading. Digital platforms such as Airbnb, Uber, Airtasker, Uber Eats and Deliveroo have started sharing data. For Airbnb and Uber this will be legislated from 1 July 2022 with food delivery and task-based platforms included from 1 July 2023) and this year the ATO has identified 100,000 taxpayers with cryptocurrency assets. Which means if you are earning extra income from the gig economy or trading, the ATO will know.
– Businesses and individuals receiving COVID Stimulus payments. The ATO is keeping a close eye on JobKeeper and JobMaker payments. Businesses that receive stimulus payments will need to declare these as income. But individuals that accessed the COVID Early release of superannuation benefit are not required to include it as assessable income (this data will be pre-filled)
Tax time spokesman Assistant Commissioner Tim Loh has stated in various interviews that while he expects to see an increase in work from home deductions, the ATO is also expecting to see a corresponding decrease in work-related expenses like travel and car expenses, business trips and uniform expenses.
To account for the increase in work from home, the shortcut method (80 cents per hour) for calculating home office expenses has been extended to cover the entire financial year. An alternate fixed rate method (52 cents per hour) has also been introduced to cover the additional running expenses (like electricity) and allow for office and equipment supplies to be claimed separately. The third option is the standard “actual cost” method with documented records and evidence.
But with the new methods comes a clear warning – use one or the other and make sure you don’t “double” dip or you will get caught.
Assistant Commissioner Sally Bektas said the ATO was also on the lookout for small businesses and individuals that are blurring the lines between personal expenses and work-related expenses.
Appearing as co-host of the ATO invoice Podcast Ms Bektas said there were three top, no-go expenses that people liked to claim. They were coffee, tea and associated appliances, and toilet paper.
“While they might normally be supplied by an employer, they still aren’t directly related to earning income. Expenses related to children’s education is another one, such as online learning courses or laptops. They’re not claimable either.
“Employees generally can’t claim a deduction for occupancy expenses such as rent, mortgage interest, property interest, land taxes, and rates when they work from home.”
This “pre-tax” preparation podcast also highlighted the six common red flags that may trigger further investigation or compliance action including;
– Under-reporting of income
– Ridiculously high expense claims (comparative to the average)
– Expense patterns that haven’t changed compared to last year
– The use of “standard” deductions
– Businesses which are not using a single touch payroll accounting system
– Early lodgers – people who lodge before pre-fill tax data is available
Single touch payroll was introduced as mandatory on 1 July 2019 and in 2019-20 the ATO took a transitional approach. This year employers who don’t have STP can expect a letter from the ATO.
The ATO also recently extended the deadline to 31 July for businesses to finalise their STP, which means that the pre-fill data feature of tax returns won’t be ready until August.
This news comes hot on the heels of a warning from the Institute of Public Accountants who urged taxpayers to hold out on early lodgements.
“The ATO already amends quite a number of returns post-lodgement. Discrepancies will create reverse workflow and expose taxpayers to interest and/or penalties,” IPA’s chief executive, Andrew Conway said.
Summary of things you can do to ensure your clients are ready for tax office scrutiny
- Make sure your clients are clear about personal expenses vs income deductible expenses
- Request diary, worksheet, or time sheet evidence for work from home expense claims
- If your clients are using the temporary shortcut method for working out work from home expenses, there are no additional expenses claimed
- Ensure your clients are declaring all income
- Make sure your clients are complying with Single Touch Payroll and superannuation changes
- Report all JobKeeper, JobMaker and other business grants as reported income
- Avoid claiming to the limits for work related expenses, uniform and travel
- Encourage clients to keep records and evidence of all expense claims
This article was written by
- The State of Tax Audits in Australia – Post Pandemic - 23 August 2021
- ATO puts businesses and individuals on notice with tax returns - 23 July 2021